It's Schadenfreude Man!Schadenfreude is a German word that means the enjoyment that comes from watching other people suffer some misfortune. Which is why Schadenfreude Man is standing there with a grin on his face in the Dr. Fun comic to the right (click to expand).

Which brings us to the current American financial woes. Names like Fannie Mae, Freddie Mac, Lehman, and AIG are big in the news, and socialists who hate capitalism are overcome with schadenfreude. To illustrate the point, I offer up an article published on the Spiegel website by Marc Pitzke titled, “The World As We Know It Is Going Down.” The title comes from a broker by the name of James Allroy as quoted in the article. If you have nothing interesting to do or need help sleeping, read the almost 1,300 word article in its entirety; for the rest of you, let me point out two sentences. The first leapt out at me from the twelfth paragraph:

In fact, it really does look as if the foundations of US capitalism have shattered.

The second sentence came four paragraphs later:

The only thing that is certain is that the era of the unbridled free-market economy in the US has passed — at least for now.

I can’t speak for you, but I can easily imagine Pitzke rubbing his hands with delighted schadenfreude at the idea of America’s free-market economy tanking. And if free-market capitalism doesn’t work, then what other options are there? Well, people love Karl Marx’s ideas of communism and communism lite, also known as socialism. Neither one makes me happy, but I’m neither a communist nor a socialist.

Are America’s current financial problems proof that an “unbridled free-market economy” has failed us? You could make that argument if you believed that the free market got us to this position, but it didn’t. Government intervention got us to this point.

To trace this problem, we have to go back to the days of President Carter. The Community Reinvestment Act (CRA) of 1977 (sometimes mistakenly called the “Community Redevelopment Act”) specified that financial institutions had to “meet the credit needs of the communities in which they operate.” It was designed to help minorities and the poor buy homes by keeping banks from denying them home loans. Turning down a loan request would be taken as prima facie evidence of racism, and the government would come down on the bank like a ton of regulatory bricks. In other words, the federal government required banks to give loans to Joe CreditRisk, ignoring Joe’s spotty job history, spotty credit record, and spotty credit payment history. Is it any wonder that there were more high-risk loans?

In 1995 President Clinton pushed for, and got, a stronger CRA. Thanks to this update, subprime mortgages for Joe CreditRisk were secured by CRA loans, leading to another increase in high-risk loans. Between 1993 and 1998, CRA loans grew by 39%, while other types of loans grew by 17%. Did this growth occur because the free market ordinarily rewards people who are proven bad credit risks? A truly free-market bank would be very hesitant to make lots of loans to people who would be unlikely to pay them off. But thanks to government intervention, the banking industry was no longer truly free-market. As a banker, you either danced to the government’s tune and offered risky loans to people who were unlikely to pay them back, or the feds would be knocking at your business doors to close you down, you horrible racist, you.

So what was the end result of government’s heavy-handed control over risky loans? Well — duh — lots of risky loans. But as long as housing prices continued to grow and grow, the banks and lending institutions could use the good deals to balance out the bad ones. But then the housing bubble popped, and high-risk debtors turned out to be — surprise, surprise — bad at making their loan payments. Having created the problem in the first place by messing around with the free market, the government stepped in to “fix” the problem with massive buyouts (with taxpayer money) for some, and giving a middle finger to others.

Is the banking crisis evidence of the collapse of America’s free-market capitalism, as Marc Pitzke maintains? No. It is the obvious result of government mucking around where it shouldn’t be. What we have here is the obvious result of a government-controlled market. In other words: Marxism sucks, and how!

Have you heard the news? The U.S. unemployment rate increased 0.5% between April and May 2008, going from 5.0% to 5.5%. The immediate result of this report is a flurry of news stories bemoaning unemployment and reaching for their thesauruses to come up with good scare words: jumped, soared, leaps. Here’s a snippet of an MSNBC story:

The nation’s unemployment rate jumped to 5.5 percent in May — the biggest monthly rise since 1986 — as nervous employers cut 49,000 jobs.

The latest snapshot of business conditions showed a deeply troubled economy, with dwindling job opportunities in a time of continuing hardship in the housing, credit and financial sectors.

“Jumped” appeared in the title and first paragraph. “Soared” appears in the fourth paragraph, and “leaps” appears in the RSS feed title for this story. All of this reminds me of something Red Planet Cartoons published in April:

It's a matter of perspective

Stocks have taken a dive because of this hand-wringing report, but what does this news story identify as the cause of the “continuing hardship”? “Housing, credit, and financial troubles” all turn out to be the same thing.

Earlier in the decade, the government essentially forced lending companies to offer loans to people who were poor credit risks, or they’d be branded and punished as horrible racists and discriminating goons. Now — surprise, surprise — a number of people who were poor credit risks due to their unstable financial behavior are defaulting on these risky loans. Government stuck its foot in front of the housing, credit, and financial sector, and now government is reporting that this sector has taken a tumble. Well, duh! What do ya expect?

Certain politicians are always talking about government as though it could singlehandedly fix the economy. In truth, there are a few ways our government could have an immediate effect on our economy: namely, if it released the restrictions on ANWR oil drilling, oil refinery building, off-shore oil drilling, and nuclear power plant construction. Those four endeavors would open up thousands of jobs in construction and maintenance alone, not to mention the number of jobs created to support them. As an added bonus, we would be increasing our domestic energy supply at a time when there is an ever-increasing demand. Increasing the supply would mean a decrease in the cost of energy, and that would benefit our economy, and the world’s economy as well. And the increase in supply would most likely lead to decreased prices at the gas pump.

Or you could try electing liberals to government whose only promise is for “change” — what kind, exactly? — and whose actions show they prefer to restrict our energy supply so you have to pay more at the pump. So how, exactly, are liberals for the little guy?

UPDATE (6/9/2008 10:25:27 PM): Jerry Bowyer at TownHall.com posted a reason for the spike in unemployment in May — the minimum wage increase Congress passed last year:

Congress is to blame. Last year Congressional Democrats (along with some Stockholm-Syndromed Republicans) passed the Fair Minimum Wage Act of 2007, which started a phased hike of the minimum wage from $5.15 an hour to $7.25. Free market economists warned them that this would increase unemployment – that rapid increases in unemployment compensation hit teens and minorities the hardest. But the class-warriors are running the people’s house now, and they would hear none of that, so they took to the floor, let loose the dogs of demagoguery, and saddled America’s pizza parlors, municipal swimming pools, house painting businesses and lawn mowing services with a huge cost increase.

Now, we see the perfectly logical outcome of wage controls – rising unemployment among the most economically vulnerable. The chart above tells the story: Friday’s unemployment spike occurred overwhelmingly among teenagers, and secondarily among African Americans. Just like we said it would. A kid who is at entry level of job skills may be a good deal at 5 bucks an hour, but not at 7. Our anointed leaders gets to glory in their generosity (with other people’s money) and just so long as very few people in the media know that a demand curve slopes downward (a good bet, there), no one calls them on it.

Which makes yet another way the government has caused this problem.